PG&E Files $4.1 Billion Claim

Published 8:00 pm, Wednesday, January 16, 2002

Pacific Gas and Electric Co. filed a $4.1 billion breach of contract claim against the state of California Thursday, saying it was prohibited from selling power from its power plants at market rates as promised under the state's 1996 deregulation law.

A law passed last year during the height of state's energy crisis violates an agreement between PG&E and the state, utility lawyers said.

That law, written by Assemblyman John Dutra, D-Fremont, prohibits utilities from selling their generating facilities until at least 2006.

The 1996 deregulation law required utilities to sell most of their power plants, turn over management of their transmission lines to an independent grid manager and open their distribution system to competition. In return, the utilities would be allowed to sell their power plants or sell energy from their nuclear and hydroelectric plants at market rates.

"When the state passed Assembly Bill 6x, a year ago today, they broke that agreement," said PG&E spokesman Ron Low.

California lawmakers approved the bill as the state's three largest utilities, including PG&E, struggled to find energy suppliers who would sell to them. Record-high wholesale prices forced them to incur huge debts, and they couldn't pass their costs to consumers.

PG&E had contracts for about one-third of its power needs with renewable generators, another one-third was bought on the spot market, and the remaining power need was met by its own plants, Dutra said.

If the utility sold its power on the spot market, it could have been purchased by energy marketers who would mark it up and sell it back to the utility at much higher prices, he said. At the time, spot market prices were hitting 60 cents a kilowatt hour.

Critics of the deregulation plan said having utilities purchase their power from outside suppliers contributed to a huge increase in wholesale energy prices.

By not selling power from those plants on the open market, PG&E officials estimate, they lost $4.1 billion in potential revenue.

Dutra said the utility, which declared bankruptcy in April, may want the law repealed to make its proposed reorganization work.

PG&E's plan would split it from its parent company, PG&E Corp., and transfer generating and electric and gas transmission assets to form three new companies.

Low said the filing wasn't connected to the reorganization plan. Instead, the claim "is because of the breach of contract." As part of the reorganization, PG&E asked the bankruptcy court to "pre-empt the minimum amount of state laws and regulations that would allow our plan to move forward."

The state Public Utilities Commission opposes the reorganization and called PG&E's claim against the state "a frivolous act of desperation."

"Once it became clear that deregulation meant vastly higher costs of electricity to California consumers and businesses, the Legislature wisely stepped in to prevent PG&E from selling off any more of its generation assets, particularly its extensive hydroelectric facilities," the PUC said in a statement.

Steve Maviglio, spokesman for Gov. Gray Davis, said the governor's advisers were reviewing the claim, but it appeared to be "another salvo against the ratepayers of the state, and now the taxpayers of the state."